NAFTA: Will it Survive another Twenty Years?

Much will no doubt be made this year of the fact that the North American Free Trade Agreement (NAFTA) has survived twenty years. I was well into my logistics career when Canada and the United States signed the Free Trade Agreement in 1989,...

March 1, 2014
by Laurie Turnbull

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Much will no doubt be made this year of the fact that the North American Free Trade Agreement (NAFTA) has survived twenty years. I was well into my logistics career when Canada and the United States signed the Free Trade Agreement in 1989, followed by NAFTA some five years later, and I’ll admit I was somewhat skeptical of the alleged benefits of free trade agreements. I’ll also admit that I was swayed to the NAFTA camp on each successive anniversary, especially in view of the benefits being heralded by all three governments, including claims of ‘economic growth’, ‘increasing trilateral trade’ and ‘tariff elimination’. Milestones were recognized at five years, ten years, and fifteen years; books were written, commissions formed and web sites established, all trumpeting the success of NAFTA.

So this was my frame of reference as I cast a spectator’s eye this year towards the success, and relevance, of NAFTA some twenty years on. And where better to look for information than the Government of Canada, signatory and partner in NAFTA?

On its website, Foreign Affairs, Trade and Development Canada (DFATD), still refers to the creation of NAFTA in terms of the ‘largest free trade region in the world’. But, has this economic juggernaut generated the benefits and results one would expect from a trilateral partnership that included the US, the world’s leading economic powerhouse? DFATD also reports on Canada’s overall trade status with other nations around the world and it was there, in the 2011 trade statistics most recently reported, that I looked for confirmation of NAFTA’s legacy and, perhaps inferred, superiority.

What I found, or, perhaps more importantly, what I didn’t find, was more revealing. In addition to trilateral trade agreements such as NAFTA, DFATD also reports on bilateral trade agreements, including a ‘top ten’ list. In 2002 for example, the largest bilateral trade relationship listed by DFATD was that between Canada and the US. The US/Mexico trade relationship was ranked second, and the trade relationship between the US and China was ranked number four, behind the US/Japan relationship. Trade between Canada and Mexico did not make the ‘top ten’ list, approximately eight years into NAFTA.

Ten years later, DFATD still listed the Canada/US bilateral trade relationship as number one in the world. But by 2011, the US/China relationship had surged ahead to number two, vaulting over both Mexico and Japan, which had fallen to third and fourth place respectively. Once again, the Canada/Mexico trade relationship did not make the ‘top ten’, approximately seventeen years into NAFTA.

So what has been NAFTA’s real contribution to Canada? What products are being shipped between our two nations? What benefits are Canadian consumers realizing as a signatory to the largest trilateral trade agreement? According to DFATD, Mexico is number five on the list of Canada’s ‘top ten’ export destinations, albeit accounting for only 1% of Canadian exports, with canola seeds being the single largest commodity exported to Mexico. Imports were of somewhat more significance in 2011 at 5.5%, mostly on the strength of vehicles, mineral fuels and oil imports.

Is this the success story that consumers envisioned for NAFTA? Or has NAFTA simply become a niche agreement for a small, select group of industries? And while those benefits can certainly be applauded, why did they not extend to consumer finished goods in a way that met consumer perceptions, if not expectations? The answer can be found in the statistics quoted above – China!

The fact that the purchasing community would look to suppliers in Shanghai, 9,000 km from Vancouver, rather than Monterrey, 4,000 km from Vancouver, speaks volumes regarding the shortfalls of NAFTA. Organizations that claim ‘sustainability’ as part of their mission statement have undoubtedly developed some creative reasoning in terms of overcoming the geographic disadvantages of China. Nonetheless, the fact that companies can source goods cheaper from Asia than Mexico underscores the need for serious discussions regarding Mexico’s ability to play a more significant role in NAFTA, including a pragmatic review of such topics as government commitment, training and education, infrastructure investments, and, yes, finished goods pricing. That shouldn’t surprise anyone, at least as much as the fact that no one has done it successfully for twenty years.

In the early days of NAFTA, the mere idea of a free trade agreement gave rise to all sorts of heady speculation, including a common currency for NAFTA signatories and an efficient land-bridge supporting a North-South America trade axis. Many of those ideas seem naïve and far-fetched twenty years later. And yet, Mexico remains a country with great trading potential, with many distinct advantages over other parts of the world for North American businesses, including proximity, access to labour, climate, and perhaps most importantly in terms of supply chain advantage, surface transportation access.

It may be twenty years later, but it’s never too late.

Laurie Turnbull, CITT, P.MM is a supply

chain consultant with Cole International, a leading Canadian logistics company providing Customs brokerage, warehousing and worldwide transportation services. He can be contacted at laurie.turnbull@cole.ca.